Giyani Announces the Results of its Feasibility Study for the K.Hill Battery -Grade Manganese Project Post -tax NPV at 8% of US$481 M, IRR of 28%
Not for distribution to U.S. newswire services or for dissemination in the United States.
TORONTO, November 14, 2022 -- Giyani Metals Corp. (TSXV: EMM, GR: A2DUU8) ("Giyani" or the "Company") is pleased to provide results of the feasibility study ("FS") for the K.Hill battery-grade manganese project in Botswana (the “Project” or “K.Hill”).
The FS has been prepared by SRK Consulting (“SRK”), as lead, on an integrated mining and processing operation for the onsite production of high-purity manganese sulphate monohydrate (“HPMSM”) directly from manganese oxide ore mined at K.Hill. HPMSM is a refined precursor material used in the production of cathode powders for lithium-ion batteries (“LI Batteries”) deployed in electric vehicles (“EVs”).
K.Hill’s total Indicated Resource of 2.1 million tonnes (“Mt”), estimated by SRK in February 2022, was evaluated for the purpose of the FS and almost 100% of the Indicated Resources have been converted into 2.0 Mt of Probable Reserves. The Inferred Resource of 3.1 Mt for K.Hill, estimated by SRK, is in the process of evaluation to be upgraded into the Indicated Resource category. New Mineral Resource Estimates for K.Hill and the nearby Otse manganese oxide prospect are currently targeted for completion in H1 2023.
Highlights1:
• Robust economic returns: a post-tax net present value (“NPV”), at an 8% discount rate, of US$481M (C$649M) and a post-tax internal rate of return (“IRR”) of 28%.
- Low capital intensity for what will be one of the largest HPMSM projects in the world: estimated initial capital expenditure of US$281M (C$379M), including contingency of US$32M (C$43M), for a fully integrated battery raw materials project.
- Strong free cash flow: net free cash flow over the life of the Project is estimated at US$1,093M (C$1,476M), equivalent to US$99M (C$134M) per year with first commercial production in 2025.
- Significant geological upside offers potential to expand Project and extend mine life: exploration work to upgrade the 3.1 Mt of Inferred Resources in the K.Hill southerly extension is progressing and the addition of these resources and the Otse prospect provides the potential to expand the Project in future years and extend the mine life significantly.
• Operational advantage of higher grade ore and conventional mining: Giyani's Probable Reserve grade of 18.9% manganese oxide (“MnO”) is the highest among its listed battery-grade manganese peers and underpins a scalable operation with an initial throughput of 200 thousand tonnes (“kt”) ore production per annum, offering potential future production capacity expansion.
1 Based on a US$:C$ exchange rate of 1.35
- LI Battery demand expected to increase significantly: CPM Group LLC (“CPM”), an independent research and consultancy company, projects demand for HPMSM in LI Batteries to grow by nearly 30 times between 2021 and 2036.
- Pathway to becoming a low-carbon producer: Giyani’s HPMSM production process directly from manganese oxide ore does not require power-intensive calcining or electrorefining and the planned integration of 4.5 MW of solar power contributes to a very competitive Scope 1 and 2 emissions footprint of only 1.4 kg of carbon dioxide equivalent per kilogram of HPMSM (see Giyani News Release of September 29, 2022).
• Strong environmental, social and governance (“ESG”) credentials: the Project’s development strategy has been formulated around the mitigation hierarchy of “avoid-minimize-mitigate” with initiatives such as renewable energy integration, water self-sufficiency and dry stack tailings management to be included in the Environmental and Social Impact Assessment (“ESIA”), currently estimated to be completed and submitted to the authorities in Botswana in Q1 2023.
• Optimization work opens opportunities for enhancing Project value: in addition to potential lifeof-project (“LOP”) extensions through further exploration success, work is ongoing to lower operating costs, particularly related to certain consumables affected by supply chain disruption and global inflation.
Jonathan Henry, Executive Chair of Giyani, commented:
Our flagship K.Hill manganese project has the potential to be one of the most significant and largest battery-grade manganese producers globally. The feasibility study shows how far the scope of the Project has developed since the April 2021 preliminary economic assessment and is the next step to bringing this project into production. These results demonstrate the robust economics of K.Hill, with our ongoing work also highlighting the expansion and optimization potential.
Giyani has an early-mover advantage to meet the growing demand for HPMSM from the EV sector, which is prioritizing responsible, low-carbon producers outside of the dominant Chinese supply chain. Our hydrometallurgical process, which treats our captive ore without the need for calcining or electrorefining, saves both cost and carbon emissions, as evidenced by the results of the recent life cycle assessment for K.Hill.
Alongside the optimization work that will be completed after the FS release, which will review opportunities to enhance the Project’s value, we continue to evaluate the 3.1 Mt of Inferred Resources at K.Hill and potential additional resources at nearby Otse still to be consolidated into the Project plan, with the view to extend K.Hill’s operating life and production capacity significantly.
In parallel to the FS work, the team has progressed the construction of our demonstration plant and it remains on track to produce HPMSM samples for testing by potential off-takers in H2 2023.
Operational and Economic Highlights
The FS is based on a Probable Reserve Estimate that will be detailed in the updated National Instrument ("NI") 43-101 Technical Report on the Project. The NI 43-101 report will include results of the FS and be filed within 45 days of this release on SEDAR at www.sedar.com and made available on the Company’s website at www.giyanimetals.com. All financial figures are quoted in US dollars unless otherwise stated and the numbers in the tables below may not add exactly due to rounding.
Table 1 Project overview
| Metrics | Units | Results | |||||
|---|---|---|---|---|---|---|---|
| Project summary | |||||||
| Type of mine | - | Conventional open pit mine | |||||
| Type of production facility | - | HPMSM hydrometallurgical processing facility | |||||
| Life of the Project (“LOP”) | years | 11.0 | |||||
| Net realized price assumption | |||||||
| Average realized HPMSM price (Yr 1 – 5) | $/t | 3,373 | |||||
| Flat realized price HPMSM price (Yr 6 – 11) | $/t | 3,918 | |||||
| Production | Annual | LOP | |||||
| Total ore mined | dry kt | 226 | 2,032 | ||||
| Run-of-mine (“RoM”) manganese oxide grade | % MnO | 18.9 | 18.9 | ||||
| Steady-state metallurgical recovery | % | 88.5% | 88.5% | ||||
| Total recovered manganese oxide | kt MnO | 31 | 339 | ||||
| Total HPMSM produced | kt | 73 | 808 | ||||
| Project cash flow | Average annual | LOP | |||||
| Revenue from HPMSM | $M | 272 | 2,993 | ||||
| Total operating costs (incl. royalty) | $M | 125 | 1,369 | ||||
| Total EBITDA | $M | 148 | 1,624 | ||||
| Initial capital expenditure excl. contingency | $M | - | 249 | ||||
| Contingency on initial capital | $M | - | 32 | ||||
| Total initial capital expenditure incl. contingency | $M | - | 281 | ||||
| Sustaining capital expenditure incl. contingency | $M | - | 21 | ||||
| Closure costs | $M | - | 5 | ||||
| Total LOP capital expenditure incl. contingency | $M | - | 307 | ||||
| Project economics | Pre-tax | Post-tax | |||||
| NPV (8% real discount rate) | $M | 603 | 481 | ||||
| IRR | % | 32.0 | 28.3 | ||||
| Payback period from start of processing | years | 3.3 | 3.6 | ||||
| Cumulative cash flow, undiscounted | $M | 1,317 | 1,093 |
Notes:
Net realized prices for HPMSM at mine gate, assuming 50% of sales to the European Union and 50% sales to North America.
Economic Analysis
A technical economic model (“TEM”), prepared by SRK on a 100% equity basis, demonstrates that K.Hill provides a robust post-tax NPV at an 8% discount rate of US$481M (C$649M) and a post-tax IRR of 28% in real terms. The TEM uses HPMSM forecast prices provided by CPM for the Company’s key markets of Europe and North America, but adjusted to run a flat price from Year 6 of the production period.
Free cash flow over the LOP is estimated at US$1,093M (C$1,476M), equivalent to US$99M (C$137M) per year (Figure 1). Payback of initial capital expenditure is estimated to be approximately 3.6 years from start of production (Table 2).
Figure 1 LOP key economic forecast and net free cash flow (NFCF)
Table 2 Valuation metrics
| Metric | Unit | Pre-tax | Post-tax | ||||
|---|---|---|---|---|---|---|---|
| NPV 5% | $M | 808 | 656 | ||||
| NPV 8% | $M | 603 | 481 | ||||
| NPV 10% | $M | 495 | 388 | ||||
| Payback period, from start of processing | Years | 3.3 | 3.6 |
A sensitivity analysis was run on the key variables affecting Project economics and NPV. The results of the sensitivity analysis are shown in Figure 2 below and include the assumed flat pricing structure from Year 6 outlined above.
Figure 2 Valuation sensitivities
Taxation
For the purposes of the TEM, following a review of the Botswana tax regime and discussions with local stakeholders, it has been assumed that the Project will be subdivided into two business units with discrete tax treatment: mining; and manufacturing.
The mining operation will sell ore to the manufacturing operation and be taxed according to the Botswana mining company tax formula (minimum of 22% on operating income). A mining royalty of 3% will be applied to the revenue on the sale of the manganese ore to the manufacturing unit. Capital investments on the mining unit can be depreciated in the year incurred and unredeemed capital will be carried forward indefinitely.
Income from the manufacturing unit will be taxed at the Botswana manufacturing tax rate of 15%, assuming a manufacturing development order will be received from the Botswana authorities. For the manufacturing unit, initial capital investments will depreciate at 10% per year on a straight-line basis and sustaining capital will depreciate at 20% per year.
Capital and Operating Expenditures
Capital and operating expenditure estimates were provided by SRK and Coffey Geotechnics Ltd., a Tetra Tech Inc. company (“Tetra Tech”).
Capital expenditure
Capital expenditure estimates were prepared for initial, sustaining and closure capital.
The total estimated initial capital expenditure for the design, construction, installation, and commissioning for all facilities and equipment for the Project is US$281M including contingency of US$32M. This estimate includes direct field costs required to execute the Project, plus indirect costs associated with design, construction, installation, and commissioning. This estimate is based on pricing as of H2 2022, with no allowances for inflation or escalation (Table 3). Closure costs of US$5M have been estimated.
This estimate is a Class 3 estimate prepared in accordance with the Association for the Advancement estimate is ‑10% to +15%.
of Cost Engineering (AACE®) International Cost Estimate Classification System. The accuracy of the
Table 3 Summary of LOP capital expenditures
| Area | Total (US$M) | ||
|---|---|---|---|
| Mining | 10.5 | ||
| Processing | 98.1 | ||
| Infrastructure and services | 31.2 | ||
| Tailings management facility (“TMF”) | 6.6 | ||
| Offsite infrastructure | 9.7 | ||
| Indirect costs (including first fill and commissioning costs) | 65.5 | ||
| Construction overheads | 21.6 | ||
| Owner’s costs | 5.5 | ||
| Total initial capital expenditure excluding contingency | 248.7 | ||
| Contingency on initial capital expenditure | 32.0 | ||
| Total initial capital expenditure including contingency | 280.7 | ||
| Sustaining capital including contingency | 21.4 | ||
| Closure cost | 5.1 | ||
| Total | 307.3 |
Contingencies on initial capital expenditure have been added at appropriate percentages to each area resulting in a contingency of US$32M or 13% of direct and indirect expenditure in relation to the initial capital expenditure.
Capital expenditures incurred after start-up are assigned to sustaining capital and are projected to be paid out of operating cash flows. In keeping with industry practice, the annual sustaining capital allowance has been estimated as 2.5% of the hydrometallurgical plant direct capital cost over a period of 8 years totalling US$21M (including 15% contingency of US$3M). Figure 3 shows the breakdown of the initial Project capital expenditure by area.
Figure 3 Initial capital expenditure breakdown by area
Operating expenditure
Operating expenditure has been derived for:
- open pit mining (inclusive of water management) and labour;
- mineral processing;
- tailings management; and
- general & administrative (“G&A”).
Total operating expenditure for K.Hill is expected to average around US$672/t milled based on an average annual RoM throughput of 200 kt/a, excluding royalties, as shown in Table 4 below. Processing expenditure accounts for around 95% of the total operating expenditure of the Project.
Table 4 Summary of Project operating expenditure per tonne processed
| Area | Operating cost | |
|---|---|---|
| (US$/t processed) | ||
| Mining | 20.0 | |
| Processing | 636.4 | |
| Tailings management | 2.0 | |
| G&A | 13.4 | |
| Total operating costs | 671.8 |
Notes:
Total operating costs excluding royalties of US$2.0/t processed
Metallurgical processing reagents and raw materials constitute the largest component of processing expenditure based on the plant design criteria and flowsheet to produce HPMSM.
Figure 4 shows that the processing reagent expenditure accounts for approximately 73% (US$92M annually) of the direct expenditure. However, of the total reagent expenditure, approximately 36% is associated with importation and freight costs of certain key reagents currently assumed to be sourced on the international markets.
Figure 4 Breakdown of process operating expenditure, including freight associated with processing reagents
During 2021 and early 2022, Covid-19 related disruptions led to an unprecedented rise in international freight rates, which elevated prices for the procurement of reagents. Since mid-2022, international freight rates have seen declines of between 50 – 75%2 and are expected to continue to normalize towards pre-Covid levels.
As part of its post-FS activities, detailed below, Giyani has commenced the process of identifying opportunities to reduce operating expenditure by lowering consumption of certain key reagents and developing local or alternative sources of reagents to mitigate international freight costs.
Working capital
An allowance for working capital is included in the TEM and reflected in the cash flow with the following delays assumed:
- Debtors: 90 days;
- Creditors: 60 days; and
- Stores: 30 – 60 days.
2 Source: Freightos Limited
Commissioning and ramp-up
The TEM assumes plant commissioning over two quarters followed by an S-curve ramp-up schedule to reflect the sophisticated nature of the K.Hill processing plant. Ramp-up has been staged over a conservative eight-quarter period and metallurgical recoveries are assumed to start at 75.0% and rise to 88.5% by completion.
HPMSM Pricing
CPM, an independent research and consultancy company based in New York and specialist in analysis of the high-purity manganese market, completed a HPMSM products market outlook study for the FS.
The study projects demand for LI Batteries used in EVs to grow by 25% annually between 2021 and 2031 and that demand for HPMSM in LI Batteries will grow nearly 30 times between 2021 and 2036, reaching 1.8 Mt on a contained metal basis, and may reach 4.5 Mt by 2050.
Utilization of high-purity manganese by the LI Battery sector is forecast to increase in the coming years as end-users seek to reduce cobalt use in nickel-manganese-cobalt (“NMC”) cathode formulations and increase manganese use in iron in lithium-iron-phosphate (“LFP”) cathode formulations. In 2018, the German chemical giant BASF announced new NMC 370 and NMC 271 cathodes with an expected cobalt content of less than 5% and significantly increased manganese content of 75% or more. Several companies are also working on different variations of the manganese-bearing LFP chemistry, where the addition of manganese could potentially improve energy density by up to 20%, while reducing the material cost by up to 28%.
Based on forecasts from CPM and E Source Companies LLC (“E Source") for EV production and LI Battery cathode chemistries, total demand for HPMSM is expected to surpass 1.6 Mt/a by 2035, on a contained metal basis. With current global HPMSM production capacity of approximately 0.1 Mt/a (contained metal) and total global production, including the known pipeline of new projects, expected to reach only 0.8 Mt/a by 2035, consumers are facing a projected supply deficit of 0.8 Mtpa by the middle of the next decade.
Currently, only six non-Chinese high-purity manganese projects are forecast to come on stream in the next five years, producing only 0.1 Mt/a (contained metal). China may be the source of an additional 0.2 Mt/a by 2027, but there are doubts as to the purity of this material due to the use of selenium containing manganese metal as a feedstock, which would likely be unsaleable in European or North American markets.
The chart in Figure 5 illustrates a 10-year projection of the forecast supply-demand balance for HPMSM to 2035 and Giyani’s estimated share of the global market. CPM has assumed a 50% recycling rate from used LI Batteries, although it considers this to be unlikely given that no manganese is currently recovered in the recycling process because of its low economic value.
Figure 5 Supply-demand balance forecast of HPMSM 2025 – 2035
5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000
- 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Chinese capacity Non-Chinese capacity Giyani Recycling Demand
Note: figures above are quoted in tonnes of HPMSM, not metal contained.
Source: E Source, International Manganese Institute, industry sources, CPM
The contractual prices between sellers and buyers of HPMSM are largely detached from the prices of other manganese products. Manganese is also the cheapest of all battery metals and, despite having an equal weight to cobalt, it accounts for only 1% to 2% of the cost of the cathode materials depending on the applicable cathode chemistry. This makes manganese prices insensitive for cathode makers.
Net HPMSM prices realized at the Project’s gate used in the TEM assume 50% of sales to the EU (Berlin) and 50% sales to North America (Detroit). CPM provided pricing forecasts for HPMSM in both EU and North American markets to 2035, however, in consultation with the Company, for the purposes of the TEM and valuation, SRK adopted a flat composite price of US$3,918/t HPMSM from Year 6 (2030) of the Project’s commencement of production to end of the LOP.
Table 5 Average net realized HPMSM prices used by SRK and forecast by CPM
| Calendar Year | Used by SRK | CPM Forecast Price | ||
|---|---|---|---|---|
| (US$/t HPMSM) | (US$/t HPMSM) | |||
| 2026 | 2,993 | 2,993 | ||
| 2027 | 3,250 | 3,250 | ||
| 2028 | 3,517 | 3,517 | ||
| 2029 | 3,775 | 3,775 | ||
| 2030 | 3,918 | 3,918 | ||
| 2031 | 3,918 | 4,147 | ||
| 2032 | 3,918 | 4,427 | ||
| 2033 | 3,918 | 4,729 | ||
| 2034 | 3,918 | 5,053 | ||
| 2035 | 3,918 | 5,499 | ||
| LOP Average | 3,704 | 4,131 |
Notes:
Projected annual average prices in US$/t of HPMSM.
Net realized prices at the Project’s gate assuming 50% of sales to the EU (Berlin) and 50% sales to North America (Detroit).
Mineral Reserve Statement
In October 2022, SRK estimated Mineral Reserves for the Project of 2,032 kt of ore with 18.9% MnO at a cut-off grade of 7.3% MnO. Modifying factors for dilution and recovery have been applied at the rate of 3% dilution and 98% recovery applied on the Mineral Resource block model.
Mineral Reserves have been estimated in accordance with the CIM Estimation of Mineral Resources & Mineral Reserves Best Practice Guidelines (CIM 2019) and classified according to the definitions presented in CIM Definition Standards for Mineral Resources & Mineral Reserves (CIM 2014). The QP is Mr. Michael Beare, B.Eng, CEng, ACSM, MIMMM, who visited the site between December 16 – 18, 2019.
Table 6 Mineral Reserve estimate for the K.Hill Project as of October, 2022
| Classification | Tonnes | MnO Grade | MnO Contained Metal | |||
|---|---|---|---|---|---|---|
| (kt) | (%) | (kt) | ||||
| Probable Reserve | 2,032 | 18.9 | 384 |
The Mineral Reserve for the Project is a subset of the Indicated Resource. SRK completed an updated Mineral Resource estimate for K.Hill in February 2022 as announced by the Company on February 16, 2022. Considering the absence of Measured Resources, Probable Mineral Reserves have been modified from Indicated Resources only. Inferred Resources have been set as waste.
Mining
The K.Hill orebody will be extracted in an open pit using a conventional truck-and-shovel mining method. The TEM assumes owner operated mining methods and equipment. The orebody will be mined in a three-zone cutback sequence, starting on the upper section of the southern flank of the pit. Material mined will be sent to either the plant, the stockpile, or the waste rock dump (“WRD”). The pit design parameters are supported by the geotechnical assessment implementing a 41° overall slope, including 4 m bench heights that are planned to be mined out in 2 m flitches. Backhoe excavators equipped with 4 m3 buckets will load selectively into 30 t haul trucks.
Figure 6 LOP mining profile
The K.Hill final pit design contains 2,032 kt of ore at 18.9% MnO above a cutoff of 7.3% MnO (excluding 3.1 Mt of Inferred material in the southerly extension of the deposit and outside the FS pit shell). The mine plan includes 8.5 years of mining with an additional 2.5 years of stockpile rehandling and processing, which results in a total operational LOP of approximately 11 years. Any of the additional 3.1 Mt of Inferred Resources, which lie to the south of the FS Probable Reserve and may in future be upgraded to Indicated category, would be expected to extend the LOP. Evaluation work on this southerly extension of the K.Hill deposit is ongoing, with infill drilling having been completed earlier in 2022.
The WRDs are planned to be constructed to the east of the proposed pit, with a total capacity of 11.4 Mt. The WRDs overall slopes have been designed at 20°, which is appropriate for immediate dump rehabilitation as part of progressive mine closure. A RoM stockpile with a peak quantity of 350 kt is planned to be built 50 m north of the process plant, allowing for easy rehandling to the RoM pad.
Geotechnical data shows that 45% of the K.Hill material has been classified as hard digging and 12% classified as very hard digging. The remainder of the material is classified as free, easy or medium digging. A crawler tractor will rip most of the material to assist the excavator in maintaining the production rate. Owing to the likely variance in material strength, small-scale blasting will be undertaken. This will allow for a smooth ongoing operation with minimum downtimes and reduce wear on machine tools when very hard material is encountered.
Processing
Tetra Tech recommended and supervised a complete feasibility-level metallurgical test work program at Mintek, a mineral processing, metallurgical laboratory and research facility based in Johannesburg, South Africa. Specialist laboratory and consulting engineers completed supplementary test work in dewatering and crystallization, respectively. Apart from the standard crushing and grinding test work, additional test work was designed to characterize the leach and selective precipitation behaviour of a representative ore sample.
The test work program successfully validated the flowsheet and produced, from a K.Hill ore sample, HPMSM crystals that meet the requirements of international buyers (Figure 7). Laboratory and crystallisation test work has demonstrated that HPMSM of not less than 99.97% purity can be produced. The overall manganese recovery was demonstrated to be up to 88.5%. Certain potential future off-takers have requested samples of HPMSM crystals produced during test work.
Figure 7 HPMSM sample produced from K.Hill ore during FS test work